Leveraged buyout can end badly
Q: What’s a leveraged buyout?
A: A leveraged buyout, or LBO, is when a company is bought out by another entity, using a lot of debt. Privateequity investors are typically involved, borrowing gobs of money without using much of their own, and often using the acquired company’s assets as collateral.
The acquired company is generally taken private, only to go public again after some changes have been made, such as layoffs, the selling of assets, or dividend increases or decreases.
While some LBOs are executed by members of management, others are hostile, executed by outsiders and not welcomed by their targets.
Many LBOs don’t end well for the company or its shareholders (there are substantial interest payments due, after all), though the acquirers often do well.
Fool’s school: What’s your asset allocation?
Asset allocation, which can shape your portfolio’s performance, is a critical but underappreciated aspect of investing. It refers to how your investments are divided among broad categories such as
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stocks, bonds and cash.
So what’s the best assetallocation formula? Classic asset-allocation guidelines will have you shifting your portfolio’s focus from stocks to bonds as you grow older and approach retirement. But the perfect asset allocation for you depends on your personal financial situation. In general, if you expect to withdraw money from your investment portfolio in the next few years, then cutting back on stocks is smart.
On the other hand, if you can meet your financial needs from other sources, then you can afford to accept the higher risk of stocks to try to boost your long-term gains.
Meanwhile, if you have more than enough saved to cover your expenses in retirement, then you have two appealing choices: You could move most or all of your money into safe investments, sacrificing growth but locking in a secure lifestyle.
Or you could take some risk with money you can afford to lose. If you invest well, you could enrich your retirement or end up with more to leave to your heirs. These same factors could lead you to make changes within asset classes, too.
To generate more income from your portfolio, for example, switching from highgrowth stocks to solid dividend-payers such as CocaCola, Johnson & Johnson or Intel can be as good as, or better than, moving from stocks to bonds. (The Motley Fool recommends and owns shares of all three companies.)
Learning more about investing can boost your results, too. It’s crucial to make sure your money is allocated in a way that’s consistent with your financial plan. To learn more, try our “Rule Your Retirement” newsletter free at RuleYourRetirement.com.
Foolish trivia
I began as a modest family gum business in Brooklyn in 1938. Today, I’m an iconic American sports-related company offering products tied to sports and athletes Americans love. I introduced Bazooka gum in 1947 and later became known for other candies.
Beginning in 1949, I packaged my gum with free cards featuring baseball players and started an annual baseball card series in 1952. Cards for hockey, basketball and football followed in the ’50s.
I’ve created a lot of popculture-based collectible cards, too, such as my Wacky Packages line. In 2012, I launched some apps for sports fans. Who am I? was founded in Minnesota in 1891 and within a decade had found great success selling pork products. I developed the world’s first canned ham in 1926 and in 1937 introduced SPAM luncheon meat. (I’ve since produced more than 7 billion cans of SPAM!)
In 1949, I began advertising via a 60-member traveling troupe of female musicians who entertained and sold my wares. My offerings today include Jennie-O turkey products and brands such as Dinty Moore, Don Miguel, El Torito, Peloponnese, Wholly Guacamole, Herdez, House of Tsang, Lloyd’s and Herb-Ox. I bought Skippy peanut butter in 2013, too. Who am I?
Answer: Hormel Foods
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